When he was in
politics, Bill Bradley, the former senator from New Jersey, was known
for proposing big ideas to shake up the established order and
entrenched constituencies. So perhaps it should not be a surprise
that he is now doing the same thing to the world of
philanthropy.
As the "lead adviser" to the
Institute for the Nonprofit Sector at McKinsey & Company, a
management consulting firm better known for its work in the business
world, he and two other consultants have rocked the nonprofit sector
with a study estimating that charities could free up $100 billion
each year, enough to give every high school graduate in the country a
$40,000 scholarship.
The study, which nonprofit
organizations say threatens their financial support by implying that
they are wasting large sums of money through inept and sloppy
management, has the philanthropic world buzzing like a swarm of
indignant hornets — and fighting back hard.
One foundation executive went so
far as to invoke the specter of the discredited Enron Corporation,
which was lavishly praised by McKinsey consultants before it became
the symbol of corporate excess and deceit.
"The last time McKinsey came into
an industry to tell it to completely recalculate how it was doing its
business was when Jeff Skilling went to Enron and told it that it
wasn't an energy company," said Vincent Stehle, the program officer
overseeing the nonprofit sector program at the Surdna
Foundation.
Mr. Bradley, who pushed for major
overhauls of the tax code, health care and campaign finance while in
the Senate or on the campaign trail, seems undisturbed and even
delighted by the hubbub he and his co-authors have caused.
"When you aim for big reform, part
of it is putting things together in a way that people aren't used to
hearing it," he said in an interview. "That may upset some people
until they get used to what you're saying."
Mr. Bradley, who ran
unsuccessfully for the Democratic presidential nomination in 2000,
said that getting involved in the nonprofit sector was a way of
continuing his commitment to public service without having to be in
public office.
"I was in public life to change
the world, and I still have that desire," Mr. Bradley said. "This
happens to be a sector where you can take some very big steps toward
that end."
The study, which appears in this
month's Harvard Business Review, uses assessment techniques borrowed
from the business world to suggest ways that nonprofit organizations
might wring money out of their operations and plow it instead into
programs and services.
The authors estimate, for
instance, that $15 billion to $26 billion a year could be pared from
fund-raising costs if organizations solicited more gifts through the
Internet and focused on attracting fewer but larger grants and
contributions.
Some $55 billion a year would
materialize, they said, if nonprofits working to provide similar
services reduced the gaps between more cost-efficient organizations
and less-efficient ones. The study found, for instance, that even if
the best and worst quarter of more than 300 local affiliates of three
national youth-service organizations were excluded, some affiliates
spent as much as 67 percent more per person served than
others.
The authors said that if nonprofit
institutions could find a way to cut just a fraction of a cent more
out of each dollar they spend a year, it would free up $20 billion.
Mr. Bradley and his colleagues
freely concede that the decision to put dollar estimates in the new
study was partly intended to be provocative, but they insist they
were conservative.
"Numbers have a way of capturing
people's attention in a way that concepts that have been talked about
for a long time don't," said Les Silverman, a McKinsey consultant who
was an author of the study. "Some will quibble with them, but we
think they will call attention to the real opportunities there are
for improvement."
Some people in the nonprofit
sector concede that the researchers have a point and that the study
addresses an issue — efficiency — of paramount importance in an era
when donors are demanding more accountability from
charities.
"It's riding the wave of interest
in nonprofit performance," said Alan Abramson, director of the
nonprofit sector and philanthropy program at the Aspen Institute,
"and they go beyond what some other folks have done by trying to
quantify what could be saved if nonprofits were able to become more
efficient and effective."
But Mr. Abramson and others argue
that the study could harm nonprofit groups by making them look like
spendthrifts.
Diana Aviv, president and chief
executive of the Independent Sector, a trade association representing
some 700 nonprofit organizations, said: "Its headline of saying there
is $100 billion in savings to be achieved is unrealistic and
unhelpful. When lawmakers and donors see a headline like that suggest
charities are inefficient, ineffective and extravagant, they will use
it to justify cutbacks in support for the sector."
Nonetheless, Ms. Aviv said, "There
are any number of suggestions in there that we would be unwise not to
examine, if only for partial value."
Ms. Aviv and other nonprofit
executives also argue that each of the McKinsey recommendations comes
with a cost of its own.
The business tool of setting
benchmarks to improve performance increases administrative costs, for
instance, and donors are particularly sensitive to increases in such
costs.
"The whole benchmarking approach
has so far been a little bit like chasing the pot of gold at the end
of the rainbow," Mr. Abramson said. "True, it's worth the effort to
get the bottom dwellers to improve their operations, but 20 years
from now, there will still be a bottom half, no matter how much
improvement is made."
Notably, the study's authors did
not take aim at administrative costs, the favorite whipping boy of
charity watchdogs and donors. Rather, they said nonprofits might even
need to spend more on management.
"Because administrative costs are
easy to measure, they're measured and people pay attention to them,"
said Paul Jansen, another author of the study. "It's going to take
management capacity to capture the opportunities we've identified for
improvements."
Mr. Bradley and Mr. Jansen are old
hands at throwing bombs in the nonprofit arena. Last year, they
raised hackles with an opinion piece in The New York Times that
suggested foundations would do better to spend more today than to
conserve their assets for perpetuity.
That debate was not new, but
McKinsey, which published a more full-blown article on the issue by
Mr. Jansen and his colleague David Katz, grabbed attention by using a
standard business calculation to weigh the effectiveness of a dollar
spent today against a dollar spent 20 years from now.
The authors revisit that study in
the new one, saying $30 billion more would flow out of foundations
and endowed institutions if they would simply increase the amount
they pay out to 7 percent from the federally mandated 5
percent.
Mr. Bradley says the new study now
puts the previous one in context.
"We're not jumping on the
bandwagon again so much as simply showing how more money could flow
into programs and services, not just from foundations and endowments,
but from the entire sector," Mr. Bradley said.